Buy Cellcast at 83.25p - Says Luke Heron of Watshot.com

This is a company firing on all fronts. I know from speaking to a source close to CLTV, that both trading and business development over the past year was very strong indeed. Crucially, I believe that the company will have exceeded market expectations for the year ended 31st December 2005. Meanwhile, UK operations and programming continue to build a strong audience base and viewer participation, in a media landscape being reshaped by the convergence of television, mobile telephony and the Internet. Cellcast's now proven business model is generating new sources of income and is attracting new broadcast partners worldwide.

Cellcast's chief product is a live entertainment show with which home viewers directly participate by sending SMS text messages from their mobile phones, or by calling an interactive voice-response (IVR) service. One of its incarnations, Sonambulos , is broadcast six days a week, during which the three-hour late night show takes the form of a lively mix of sketches, celebrity guests, quizzes, games and valuable prizes based on a proprietary format developed by Cellcast. Since its launch in September, over two million viewer responses have been generated, clearly demonstrating the strength of the programme format. There is an unquestionable thirst for the content in the Latin American market, which is fast emerging as one of the world's largest integrated markets for mobile content, with considerable potential that this will translate into a high value opportunity for mobile entertainment and participation TV.

Cellcast's entry into the Latin American market follows its success in establishing eight participation TV channels in the UK market on the Sky Digital platform, and generating millions of dollars in incremental revenue for its international broadcast partners which include Canal + in France; Future TV, LBC, MBC, Dubai Television and Rotana in the Middle East; and Zee TV and Star TV in India. In short, this is already a well-established concept that is proving itself to be very promising indeed. With so many more markets to tackle, the opportunity here is massive.

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More recently Cellcast announced its move into the world of 3G TV programmes. Cellcast's popular TV dating programme, Text2date, which is broadcast daily on the youtv2 channel on the Sky Digital platform, allows members of the public with 3G mobile phones to send in video content and participate with studio guests and other viewers. With the recent completion of the integration of inbound 3G video into its proprietary Interactive Platform, Cellcast is well placed to capitalise on this opportunity. Working with the mobile services company Requestec, Cellcast plans to roll the technology out across the entire portfolio of its television formats in a fully-moderated, time delayed environment. The company is also integrating Requestec's Fonebar service into its platform to enable video chat between mobile users.

And so to the numbers....In the year to December 2004, a pre-tax loss of 400,000 pounds was reported on sales of 8.2 million pounds. In the year ended 31st December 2005, we now know that sales will be comfortably above my previous 13 million pounds target with losses at the pre-tax level, approaching the 1 million pound mark. This is not a problem, the existing finance facilities can more than accommodate these losses, which arose on the back of the continued expansion. It is the current year - the 12-month period to December 2006, when the tables will be turned on the historic losses, as Cellcast ushers in a period of growing profitability. I reckon we could see pre-tax profits of 1.75 million pounds, assuming my hope of revenues reaching 26 million pounds is met. With the current progress being achieved, this would seem very achievable. My forecast numbers would represent earnings of 6p. I have weighted my forecasts to take into account that some regions will not be as successful as others - these numbers could well be humbled by this cracking little growth enterprise outperforming my somewhat conservative numbers. Indeed, I have already been proved overly cautious for my numbers for the year just ended. In the meantime, I think that the exiting concept, coupled with the enormous market potential and anticipated newsflow, will be sufficient to take the shares forward.

We first tipped this stock at 58p a few months ago when it was an utter steal. It is still hugely undervalued and at 83.25p, my stance remains "buy".

Well overdue a bounce, been marked now on almost no volume with all
3 mm's buyers of the stock, it's a case of how far the mm's will push their
luck until buyers return, the volume for the last two weeks has been not
far off zero but try and buy 100k and you will get refused, it's NMS or a
premium if you try and buy.